The Hongwha Clothing factory in North Shanghai is a small scale affair, and it is just the size of business that's hurting most from tightening European quotas.

At first there's little evidence of a problem. The fifty or so work benches are busily working away, cutting, stitching and pressing a colourful mix of fabrics and leathers.

But on closer inspection, its easy to see the impact of the European restrictions. Plenty of shirts and jackets are being made - but no trousers.

Trousers have already hit their EU quota limit, so Hongwha Clothing has switched to alternatives.

But that is not a long-term option. Since the weekend more imports have been blocked, as T-shirts, bras and blouses also reached their quotas.

The European Commission argues this is to protect garment manufacturers in countries like Spain and Italy. Europe is being overwhelmed by a flood of clothing from eager Chinese producers. Plans for free trade in clothing were abandoned and new import limits introduced.

So far this year, China has exported £5bn ($8.9bn; 7.3 billion euros) of clothing to Europe, equivalent to almost the whole amount exported in 2004.

Alternatives

Chinese producers have responded by switching to their home market - or letting staff go. But they say banning Chinese exports won't solve the problems for European manufacturers.

I won't give this work to a factory in Italy, Spain or Portugal - the work will stay in Asia

Wolfram Geuting, Steilman

Across town, Steilman clothing is another company counting the cost of the export ban.

This German company sells clothes from Asia to Europe's biggest High Street stores and has over £500,000 worth of stock stuck in European customs warehouses. But like many suppliers, Steilman is adapting by switching production to other countries - none of them in Europe.

"Vietnam is going back very strongly into the market, so too are Myanmar (Burma) and Sri Lanka," says Wolfram Geuting, the company's managing director.

"We're not minimising imports to Europe, we're only minimising exports from China. All my trousers are not produced in China anymore, but they're still produced in Asia.

"I won't give this work to a factory in Italy, Spain or Portugal. The work will stay in Asia."

It's a view shared by the authorities here. The state media has focused on the cost of the quota restrictions to European and American retailers - and their customers. Much is made of the bargain-hungry Western shoppers and their demand for ever shrinking price tags.

The European Commission is caught between its manufacturers who want to keep China out, and its retailers who need China's low costs to survive in the razor-thin margins of the fashion business.

Officials from Brussels plan to visit China in an attempt to ease the situation. They may offer to bring forward next year's quota capacity to 2005.

But the official line from Beijing is that few other countries can compete with its low costs or the scale of its production. European manufacturers, they say, are only postponing the inevitable.